Multiple States Considering Implementing Long-Term Care Tax
For years, state and federal governments have used tax incentives to encourage the purchase of Long-Term Care Insurance. Following the lead of Washington state, which already has its plan called Washington Cares, several other states are considering a tax on individuals who do not have a qualifying policy.
More specifically, what’s labeled as a “benefit” may feel more like a “tax.” Washington state was the first in the nation to implement a payroll tax to fund Washington Cares, a state-run long-term care program. However, critics argue it functions more as a tax than a true benefit, and since the coverage amount is so limited, it offers little meaningful support.
History of Washington Cares
Washingtonians had a brief window to purchase a qualifying Long-Term Care Insurance policy to circumvent the payroll tax of 58 cents for every $100 earned. The payroll tax is now in effect, and the state will no longer provide residents additional time to secure coverage to bypass the tax. There is talk of opening up another opportunity, but there is little support from lawmakers.
Supporters of the long-term care tax argue that it will help fund essential care services for aging residents, providing a safety net for those without private coverage. However, critics say the benefits are too limited to make a real difference, placing an added financial burden on taxpayers. These critics also warn that the program may give residents a false sense of security, leading many to believe they have adequate long-term care coverage when, in fact, they do not.
“A publicly funded long-term care program may offer a safety net in theory, but when the benefits fall short, it becomes more illusion than insurance. It risks giving people peace of mind they haven’t actually earned—until the moment they truly need care and realize it’s not enough.”
Washingtonians who do not own an LTC Insurance policy will have a state-supplied benefit of $36,500 in lifetime benefits to pay for extended care needs. Considering that Washington is one of the country's most expensive states for long-term health care, according to the LTC News survey of long-term costs nationwide, the state plan is hardly a plan for long-term care, and critics call it a cash grab.
For example, Seattle's average cost of in-home care is around $7347 a month (based on a 44-hour week). Nursing homes in Seattle average nearly $14,331 a month (2025 numbers), but the cost is expected to average nearly $28,000 a month in twenty-five years.
In the November 2024 general election, Washington state's Initiative 2124, which proposed allowing residents to opt out of the Washington Cares, was defeated. The initiative garnered approximately 44.5% approval, with 1,668,435 votes in favor and 55.5% opposition, totaling 2,077,216 votes against.
Initiative 2124 attempted to amend the existing WA Cares program by making participation voluntary for employees and self-employed individuals.
Currently, most workers in Washington contribute 0.58% of their wages to fund Washington Cares unless they have a qualified LTC Insurance policy prior to the deadline. Passage of Initiative 2124 would make participation in the program voluntary, raising concerns about the fund's long-term solvency.
State Budget Pressure Due to Medicaid Spending Reason for Tax
The tax is designed to help fund Medicaid, the nation’s largest payer of long-term health care expenses. To qualify for Medicaid, individuals must have limited income and minimal assets. Many families are surprised to learn that traditional health insurance, including Medicare, covers only short-term skilled care—not extended long-term support.
Only Medicaid and Long-Term Care Insurance cover comprehensive services such as custodial care, which includes help with daily activities like bathing, dressing, or supervision due to cognitive decline, including dementia.
Unfortunately, many people fail to plan for long-term care despite the reality that health declines from illness, injury, or aging are inevitable. As individuals grow older, the likelihood of needing assistance with everyday tasks increases significantly.
"Too many people put off planning for long-term care, not because they believe they’ll never need it, but because it’s hard to imagine a future where independence fades. Yet aging, illness, and unexpected injury come for all of us—and the greatest gift you can give your future self is the dignity of being prepared."
The U.S. Department of Health and Human Services estimates that more than 56% of Americans turning 65 today will require some form of long-term care services during their lives. Without a solid plan, individuals must either pay for care out of pocket or rely on family members to take on the demanding role of caregiver.
The burden on Medicaid is already substantial and is projected to grow. While it remains unclear whether state and federal governments are actively promoting private long-term care insurance, there is clear momentum to explore sustainable funding solutions for individuals with limited financial resources.
With Medicaid under mounting pressure and the aging of both baby boomers and Gen X, states are increasingly looking for ways to reduce the program’s financial strain—often by encouraging earlier planning or alternative coverage options to help protect both individuals and public resources.
Several U.S. states are considering implementing their versions of an LTC Tax, and numerous states are already drafting legislation similar to the Washington Cares Fund.
Politics and California Stalling LTC Program?
The timeline for California’s proposed long-term care tax may hinge on shifting political dynamics, according to a state Senate source who spoke to LTC News on condition of anonymity.
Advisers close to Gov. Gavin Newsom are reportedly concerned about the political risks of introducing a new payroll tax, particularly in light of Donald Trump’s 2024 presidential victory and the recent wildfires in the Los Angeles area.
Sources say Newsom’s inner circle is divided. Some view the proposal as a political liability—especially in key primary states—while others argue it reinforces his progressive credentials. Observers note that Newsom has recently taken a more centrist tone as he positions himself for a possible presidential run.
The legislation has also stalled in the state Legislature. Without public support from Newsom, insiders say the proposal may be shelved indefinitely.
If enacted, the California tax would apply to earned income, including bonuses, vacation payouts, and the value of annual stock grants. Most proposals include an opt-out for individuals who own and maintain a qualified long-term care insurance policy.
There is debate over whether to allow an annual opt-out window for residents who acquire qualifying private coverage after the tax takes effect. However, sources say such a provision is unlikely to make it into the final legislation.
If the law is passed and signed, California may offer a limited window—similar to what Washington state allowed—for residents to purchase long-term care insurance and avoid the tax.
In addition to California, several other states—including New York and Minnesota—have begun exploring their own long-term care initiatives. While these discussions are still in the early stages, the issue is gaining traction as states grapple with aging populations and growing pressure on Medicaid systems.
Some states are no longer actively looking at state programs. The states where political leaders have held some level of current discussion around long-term care reform include:
- California
- Hawaii
- Illinois
- Massachusetts
- Minnesota
- New York
- North Carolina
- Oregon
- Pennsylvania
- Vermont
As with any legislative issue, the political landscape remains fluid, and the status of these proposals may shift quickly.
According to several policy observers, the election of Donald Trump in 2024 altered the national mood. The Trump administration has emphasized domestic spending cuts, government efficiency, and lower taxes. In that environment, some states may hesitate to move forward with new tax-funded care programs. However, others argue the opposite—that a reduced federal role may prompt states to take independent action to prepare for the rising demand for long-term care.
An LTC News survey of state lawmakers involved in aging and long-term care policy revealed mixed views. Most respondents indicated that any decision to move forward would be made cautiously and only after weighing both political risks and long-term financial implications.
Among the states closely watched in this space, Minnesota and New York are seen as the most likely to advance legislation in 2025 or 2026.
Younger Workers Must Pay Tax
While most experts recommend including long-term care planning as part of your overall retirement strategy, new tax proposals in several states could force residents—especially younger adults—to take action sooner. Without a qualifying LTC policy, individuals may face a lifetime payroll tax dedicated to funding state-run long-term care programs with minimal benefits.
Securing coverage early makes financial sense for younger workers with higher lifetime earning potential. In addition to traditional Long-Term Care Insurance options, life insurance policies with long-term care riders—meeting the requirements of Section 7702(b) of the U.S. Code—are increasingly popular.
These hybrid policies offer both a life insurance benefit and qualified long-term care coverage, making them tax-exempt under the proposed LTC tax programs. Many are affordable and available to individuals as young as 18.
Long-term care services are expensive, and costs rise every year. Traditional health insurance, including Medicare and Medigap plans, does not cover custodial care or other extended services needed due to aging, chronic illness, or cognitive decline.
"Long-term care isn’t just costly—it’s a burden that often falls unexpectedly on families. As expenses rise each year and traditional insurance fails to cover custodial care, loved ones are left scrambling to become caregivers or manage complex, expensive extended care arrangements. Without an LTC policy, the toll isn’t just financial—it’s emotional and deeply personal."
The LTC News Cost of Care Calculator offers up-to-date insights into the current and projected costs of extended care across the country, broken down by cities in each state.
When selecting Long-Term Care Insurance, experts caution against choosing a bare-bones policy. A well-structured plan not only protects your savings and retirement accounts—such as a 401(k)—from the high cost of extended care but also ensures access to your preferred providers, including in-home care. It can significantly reduce the emotional and financial strain on loved ones, offering peace of mind for you and your family as you age.
While a few employers offer Long-Term Care Insurance options, these plans are often bundled with life insurance and tend to be more expensive than individual policies purchased outside the workplace.
In some cases, they may not meet federal guidelines under Section 7702(b) of the U.S. Code, meaning they might not qualify for tax-exemption under state long-term care tax laws.
However, one advantage is that eligibility requirements for these employer-sponsored programs are typically lenient, with minimal or no medical underwriting, making them accessible to a wider range of employees.
Select a Qualified Policy That Meets Federal Code 7702(b)
Because states may implement long-term care taxes with little or no advance notice, it’s wise not to delay securing coverage. To qualify for exemption from these taxes, you must own a tax-qualified Long-Term Care Insurance policy that complies with Section 7702(b) of the U.S. Code.
What Are Long-Term Care Insurance Regulations? How Do They Protect Policyholders?
Work with an experienced Long-Term Care Insurance specialist who represents multiple top-rated companies. Premiums for similar coverage can vary by more than 100% between insurers.
Since LTC Insurance is medically underwritten, a specialist can help match your age, health, and family history with the most suitable carrier, ensuring you receive accurate quotes and the best value.
👉 Find a Qualified Independent LTC Insurance Specialist - Get Accurate Quotes.
Buying the least expensive policy may be tempting just to avoid the tax. However, unless you have a limited income and don't expect it to increase, this could be a mistake. While you can always add to your coverage later, the cost will be based on your age and health at that time—both of which may work against you.
Be cautious of policies that lack essential features like inflation protection or partnership certification, both of which can significantly impact your long-term care planning.
While a few employer-sponsored plans exist, they’re typically not the best option unless your health limits your choices or you're simply looking for a basic plan to meet tax exemption requirements at the lowest possible cost.
No New Federal Long-Term Care Plan on the Horizon
With the election of Donald Trump as president in 2024 and Republicans maintaining influence in Congress, the likelihood of any new federal long-term care initiative is virtually nonexistent.
Although national policy experts have floated ideas such as a federal long-term care plan, none of these proposals have gained meaningful traction. For now, individuals should not wait for a federal solution that may never materialize.
Federal Tax Incentives Still Exist — Partnership Programs Offer Added Protection
Despite the political gridlock in Washington, existing federal tax incentives for Long-Term Care Insurance remain in place. Policies that qualify under Section 7702(b) of the U.S. Code may offer tax-deductible premiums, particularly for self-employed individuals and business owners.
👉 LTC Insurance Tax Deduction Amounts and HSA Contribution Limits for 2025
In addition, most states participate in the Long-Term Care Insurance Partnership Program. These plans provide dollar-for-dollar asset protection, meaning every dollar the insurance pays out preserves a dollar of your assets if you ever need to qualify for Medicaid.
👉 What Is the Partnership Program in Long-Term Care Insurance?
States Will Lead the Way — You Must Prepare Now
The need for long-term care is a real and growing issue. With rising costs and longer lifespans, most Americans will face some form of extended care as they age.
States simply do not have the financial capacity to cover everyone's care, and more are expected to follow the example of Washington State by implementing payroll taxes to fund basic long-term care programs.
President Donald Trump has addressed issues related to aging and long-term care. Notably, during a rally at Madison Square Garden in October 2024, he announced a policy proposal to provide tax credits to family caregivers who care for aging parents or loved ones.
This initiative aimed to recognize and support unpaid family caregivers, though specific details about the proposed tax incentives were not disclosed.
Additionally, in March 2025, during a joint address to Congress, President Trump discussed the importance of preserving Social Security and Medicare benefits. He emphasized his commitment to safeguarding these programs, which are vital to many seniors.
That’s why preparation matters. LTC Insurance is medically underwritten, so applying while you're still in good health and premiums are lower is essential. Waiting could impact not just your eligibility for LTC Insurance, but also your ability to avoid state-level taxes tied to future care mandates.
👉 LTC News Long-Term Care Insurance Education Center
With no federal plan on the horizon and states taking matters into their own hands, planning ahead is more important than ever. A comprehensive retirement strategy should include long-term care planning—whether through traditional or hybrid insurance products.
By acting now, you not only protect your assets but also ensure access to quality care while easing the burden on those you love.